Berenberg lowers target price on Gem Diamonds following coronavirus outbreak

Berenberg said the diamond market's "already fragile recovery" in 2020, as midstream inventories began to normalise, had been "all but snuffed out by the evolution of COVID-19".

The German bank highlighted that there had been reports of reduced demand for rough diamonds from key industry participants such as De Beers and ALROSA, which were providing additional support to their midstream customers in the form of deferrals of rough purchases.

While Berenberg noted that China only accounted for about 14% of global diamond jewellery demand by value, the analysts stated that the negative knock-on impact on global sentiment and consumer confidence had also led to falling retail demand.

"This is exacerbated by the fact that, as the midstream buys for cash and sells on credit, [the] building of inventory levels (for which it will receive delayed payment) puts pressure on already fragile margins," said Berenberg, which reiterated its 'hold' rating on the group.

"While De Beers and ALROSA have the balance sheets to withhold production to stabilise the market, this is not the case for smaller names like Gem Diamonds, which are broadly price-takers."

Berenberg said it expects demand for rough diamonds to remain subdued until sentiment improves and forecast for another year of flat-to-lower prices before "some form of normalisation" in 2021.